F 09.30.2014 10-Q
 


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One)
 
R
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
For the quarterly period ended September 30, 2014
 
 
 
or
 
 
o
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
For the transition period from  __________ to __________
 
 
 
Commission file number 1-3950
 
Ford Motor Company
(Exact name of Registrant as specified in its charter)

Delaware
38-0549190
(State of incorporation)
(I.R.S. Employer Identification No.)
 
 
One American Road, Dearborn, Michigan
48126
(Address of principal executive offices)
(Zip Code)
313-322-3000
(Registrant’s telephone number, including area code)


Indicate by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  R   No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  R   No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.   Large accelerated filer R     Accelerated filer o     Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No  R
 
As of October 24, 2014, Ford had outstanding 3,777,835,341 shares of Common Stock and 70,852,076 shares of Class B Stock.  
  


Exhibit Index begins on page


 









FORD MOTOR COMPANY
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2014
 
Table of Contents
 
Page
 
Part I - Financial Information
 
 
Item 1
Financial Statements
 
 
Consolidated Income Statement
 
 
Consolidated Statement of Comprehensive Income
 
 
Sector Income Statement
 
 
Consolidated Balance Sheet
 
 
Sector Balance Sheet
 
 
Condensed Consolidated Statement of Cash Flows
 
 
Condensed Sector Statement of Cash Flows
 
 
Consolidated Statement of Equity
 
 
Notes to the Financial Statements
 
 
Report of Independent Registered Public Accounting Firm
 
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
Results of Operations
 
 
Automotive Sector
 
 
Financial Services Sector
 
 
Liquidity and Capital Resources
 
 
Production Volumes
 
 
Outlook
 
 
Accounting Standards Issued But Not Yet Adopted
 
 
Other Financial Information
 
Item 3
Quantitative and Qualitative Disclosures About Market Risk
 
 
Automotive Sector
 
 
Financial Services Sector
 
Item 4
Controls and Procedures
 
 
 
 
 
 
Part II - Other Information
 
 
Item 1
Legal Proceedings
 
Item 1A
Risk Factors
 
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 6
Exhibits
 
 
Signature
 
 
Exhibit Index
 

i

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(in millions, except per share amounts)
 
For the periods ended September 30,
 
2014
 
2013
 
2014
 
2013
 
Third Quarter
 
First Nine Months
 
(unaudited)
Revenues
 
 
 
 
 
 
 
Automotive
$
32,779

 
$
33,857

 
$
102,020

 
$
103,794

Financial Services
2,141

 
1,918

 
6,187

 
5,553

Total revenues
34,920

 
35,775

 
108,207

 
109,347

 
 
 
 
 
 
 
 
Costs and expenses
 

 
 

 
 
 
 
Automotive cost of sales
30,197

 
30,030

 
92,465

 
92,559

Selling, administrative, and other expenses
3,484

 
3,235

 
10,332

 
9,562

Financial Services interest expense
673

 
762

 
2,034

 
2,173

Financial Services provision for credit and insurance losses
74

 
46

 
217

 
139

Total costs and expenses
34,428

 
34,073

 
105,048

 
104,433

 
 
 
 
 
 
 
 
Automotive interest expense
204

 
204

 
619

 
617

 
 
 
 
 
 
 
 
Automotive interest income and other income/(loss), net (Note 14)
255

 
200

 
739

 
686

Financial Services other income/(loss), net (Note 14)
90

 
100

 
245

 
270

Equity in net income of affiliated companies
388

 
293

 
874

 
780

Income before income taxes
1,021

 
2,091


4,398


6,033

Provision for/(Benefit from) income taxes (Note 16)
188

 
818

 
1,261

 
1,914

Net income
833

 
1,273

 
3,137

 
4,119

Less: Income/(Loss) attributable to noncontrolling interests
(2
)
 
1

 
2

 
3

Net income attributable to Ford Motor Company
$
835

 
$
1,272

 
$
3,135

 
$
4,116

 
 
 
 
 
 
 
 
AMOUNTS PER SHARE ATTRIBUTABLE TO FORD MOTOR COMPANY COMMON AND CLASS B STOCK (Note 18)
Basic income
$
0.22

 
$
0.32

 
$
0.80

 
$
1.05

Diluted income
0.21

 
0.31

 
0.78

 
1.02

 
 
 
 
 
 
 
 
Cash dividends declared
0.125

 
0.10

 
0.375

 
0.30



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
 
For the periods ended September 30,
 
2014
 
2013
 
2014
 
2013
 
Third Quarter
 
First Nine Months
 
(unaudited)
Net income
$
833

 
$
1,273

 
$
3,137

 
$
4,119

Other comprehensive income/(loss), net of tax (Note 13)
 
 
 
 
 
 
 
Foreign currency translation
(550
)
 
313

 
(468
)
 
(483
)
Derivative instruments
(48
)
 
(95
)
 
(243
)
 
191

Pension and other postretirement benefits
540

 
109

 
776

 
1,640

Total other comprehensive income/(loss), net of tax
(58
)
 
327

 
65

 
1,348

Comprehensive income
775

 
1,600

 
3,202

 
5,467

Less: Comprehensive income/(loss) attributable to noncontrolling interests
(2
)
 
1

 
2

 
3

Comprehensive income attributable to Ford Motor Company
$
777

 
$
1,599

 
$
3,200

 
$
5,464


The accompanying notes are part of the financial statements.

1
Item 1. Financial Statements (Continued)



FORD MOTOR COMPANY AND SUBSIDIARIES
SECTOR INCOME STATEMENT
(in millions)
 
For the periods ended September 30,
 
2014
 
2013
 
2014
 
2013
 
Third Quarter
 
First Nine Months
 
(unaudited)
AUTOMOTIVE
 
 
 
 
 
 
 
Revenues
$
32,779

 
$
33,857

 
$
102,020

 
$
103,794

Costs and expenses
 
 
 
 
 
 
 
Cost of sales
30,197

 
30,030

 
92,465

 
92,559

Selling, administrative, and other expenses
2,489

 
2,382

 
7,516

 
7,351

Total costs and expenses
32,686

 
32,412

 
99,981

 
99,910

 
 
 
 
 
 
 
 
Interest expense
204

 
204

 
619

 
617

 
 
 
 
 
 
 
 
Interest income and other income/(loss), net (Note 14)
255

 
200

 
739

 
686

Equity in net income of affiliated companies
382

 
287

 
853

 
763

Income before income taxes — Automotive
526

 
1,728

 
3,012

 
4,716

 
 
 
 
 
 
 
 
FINANCIAL SERVICES
 

 
 

 
 
 
 
Revenues
2,141

 
1,918

 
6,187

 
5,553

Costs and expenses
 
 
 
 
 
 
 
Interest expense
673

 
762

 
2,034

 
2,173

Depreciation on vehicles subject to operating leases
808

 
632

 
2,256

 
1,673

Operating and other expenses
187

 
221

 
560

 
538

Provision for credit and insurance losses
74

 
46

 
217

 
139

Total costs and expenses
1,742

 
1,661

 
5,067

 
4,523

 
 
 
 
 
 
 
 
Other income/(loss), net (Note 14)
90

 
100

 
245

 
270

Equity in net income of affiliated companies
6

 
6

 
21

 
17

Income before income taxes — Financial Services
495

 
363

 
1,386

 
1,317

 
 
 
 
 
 
 
 
COMPANY
 
 
 
 
 
 
 
Income before income taxes
1,021

 
2,091

 
4,398

 
6,033

Provision for/(Benefit from) income taxes (Note 16)
188

 
818

 
1,261

 
1,914

Net income
833

 
1,273

 
3,137

 
4,119

Less: Income/(Loss) attributable to noncontrolling interests
(2
)
 
1

 
2

 
3

Net income attributable to Ford Motor Company
$
835

 
$
1,272

 
$
3,135

 
$
4,116


The accompanying notes are part of the financial statements.

2
Item 1. Financial Statements (Continued)



FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions)
 
September 30,
2014
 
December 31,
2013
 
(unaudited)
ASSETS
 
 
 
Cash and cash equivalents
$
13,320

 
$
14,468

Marketable securities
20,643

 
22,100

Finance receivables, net (Note 4)
79,882

 
77,481

Other receivables, net
11,143

 
9,828

Net investment in operating leases
23,010

 
19,984

Inventories (Note 6)
9,296

 
7,708

Equity in net assets of affiliated companies
3,103

 
3,679

Net property
30,048

 
27,616

Deferred income taxes
12,312

 
13,468

Other assets
6,078

 
5,847

Total assets
$
208,835

 
$
202,179

 
 
 
 
LIABILITIES
 

 
 

Payables
$
21,155

 
$
19,531

Other liabilities and deferred revenue (Note 8)
41,407

 
40,886

Debt (Note 10)
119,193

 
114,688

Deferred income taxes
576

 
598

Total liabilities
182,331

 
175,703

 
 
 
 
Redeemable noncontrolling interest (Note 12)
339

 
331

 
 
 
 
EQUITY
 

 
 

Capital stock
 

 
 

Common Stock, par value $.01 per share (3,934 million shares issued of 6 billion authorized)
39

 
39

Class B Stock, par value $.01 per share (71 million shares issued of 530 million authorized)
1

 
1

Capital in excess of par value of stock
21,680

 
21,422

Retained earnings
25,051

 
23,386

Accumulated other comprehensive income/(loss) (Note 13)
(18,165
)
 
(18,230
)
Treasury stock (Note 18)
(2,470
)
 
(506
)
Total equity attributable to Ford Motor Company
26,136

 
26,112

Equity attributable to noncontrolling interests
29

 
33

Total equity
26,165

 
26,145

Total liabilities and equity
$
208,835

 
$
202,179

 
The following table includes assets to be used to settle liabilities of the consolidated variable interest entities (“VIEs”).  These assets and liabilities are included in the consolidated balance sheet above.  See Note 7 for additional information on our VIEs.
 
September 30,
2014
 
December 31,
2013
 
(unaudited)
ASSETS
 
 
 
Cash and cash equivalents
$
2,022

 
$
4,198

Finance receivables, net
37,590

 
45,796

Net investment in operating leases
9,927

 
8,116

Other assets
13

 
5

LIABILITIES
 
 
 
Other liabilities and deferred revenue
$
18

 
$
88

Debt
35,869

 
40,728


The accompanying notes are part of the financial statements.

3
Item 1. Financial Statements (Continued)



FORD MOTOR COMPANY AND SUBSIDIARIES
SECTOR BALANCE SHEET (in millions) 
 
September 30,
2014
 
December 31,
2013
ASSETS
(unaudited)
Automotive
 
 
 
Cash and cash equivalents
$
5,980

 
$
4,959

Marketable securities
16,876

 
20,157

Total cash and marketable securities
22,856

 
25,116

Receivables, less allowances of $119 and $132
5,697

 
5,641

Inventories (Note 6)
9,296

 
7,708

Deferred income taxes
1,590

 
1,574

Net investment in operating leases
1,935

 
1,384

Other current assets
1,305

 
1,034

Total current assets
42,679

 
42,457

Equity in net assets of affiliated companies
2,964

 
3,546

Net property
29,739

 
27,492

Deferred income taxes
12,307

 
13,436

Other assets
2,890

 
2,824

Non-current receivable from Financial Services
694

 
724

Total Automotive assets
91,273

 
90,479

Financial Services
 

 
 

Cash and cash equivalents
7,340

 
9,509

Marketable securities
3,767

 
1,943

Finance receivables, net (Note 4)
84,537

 
80,816

Net investment in operating leases
21,075

 
18,600

Equity in net assets of affiliated companies
139

 
133

Other assets
3,161

 
3,149

Receivable from Automotive
453

 
907

Total Financial Services assets
120,472

 
115,057

Intersector elimination
(1,147
)
 
(1,631
)
Total assets
$
210,598

 
$
203,905

LIABILITIES
 

 
 

Automotive
 

 
 

Payables
$
19,892

 
$
18,035

Other liabilities and deferred revenue (Note 8)
18,254

 
16,537

Deferred income taxes
313

 
267

Debt payable within one year (Note 10)
2,727

 
1,257

Current payable to Financial Services
453

 
907

Total current liabilities
41,639

 
37,003

Long-term debt (Note 10)
12,216

 
14,426

Other liabilities and deferred revenue (Note 8)
21,190

 
22,089

Deferred income taxes
408

 
430

Total Automotive liabilities
75,453

 
73,948

Financial Services
 

 
 

Payables
1,263

 
1,496

Debt (Note 10)
104,250

 
99,005

Deferred income taxes
1,618

 
1,627

Other liabilities and deferred income (Note 8)
1,963

 
2,260

Payable to Automotive
694

 
724

Total Financial Services liabilities
109,788

 
105,112

Intersector elimination
(1,147
)
 
(1,631
)
Total liabilities
184,094

 
177,429

 
 
 
 
Redeemable noncontrolling interest (Note 12)
339

 
331

 
 
 
 
EQUITY
 

 
 

Capital stock
 

 
 

Common Stock, par value $.01 per share (3,934 million shares issued of 6 billion authorized)
39

 
39

Class B Stock, par value $.01 per share (71 million shares issued of 530 million authorized)
1

 
1

Capital in excess of par value of stock
21,680

 
21,422

Retained earnings
25,051

 
23,386

Accumulated other comprehensive income/(loss) (Note 13)
(18,165
)
 
(18,230
)
Treasury stock (Note 18)
(2,470
)
 
(506
)
Total equity attributable to Ford Motor Company
26,136

 
26,112

Equity attributable to noncontrolling interests
29

 
33

Total equity
26,165

 
26,145

Total liabilities and equity
$
210,598

 
$
203,905

The accompanying notes are part of the financial statements.

4
Item 1. Financial Statements (Continued)



FORD MOTOR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
 
For the periods ended September 30,
 
2014
 
2013
 
First Nine Months
 
(unaudited)
Cash flows from operating activities of continuing operations
 
 
 
Net cash provided by/(used in) operating activities
$
12,339

 
$
10,129

 
 
 
 
Cash flows from investing activities of continuing operations
 
 
 
Capital spending
(5,309
)
 
(4,659
)
Acquisitions of finance receivables and operating leases
(39,368
)
 
(33,636
)
Collections of finance receivables and operating leases
27,607

 
25,141

Purchases of securities
(37,788
)
 
(96,614
)
Sales and maturities of securities
39,153

 
94,064

Settlements of derivatives
(46
)
 
(247
)
Proceeds from sales of retail finance receivables (Note 17)
—

 
410

Other
157

 
221

Net cash provided by/(used in) investing activities
(15,594
)
 
(15,320
)
 
 
 
 
Cash flows from financing activities of continuing operations
 

 
 

Cash dividends
(1,470
)
 
(1,179
)
Purchases of Common Stock
(1,964
)
 
(164
)
Changes in short-term debt
(2,792
)
 
(3,227
)
Proceeds from issuance of other debt
31,107

 
28,946

Principal payments on other debt
(22,504
)
 
(20,288
)
Other
36

 
254

Net cash provided by/(used in) financing activities
2,413

 
4,342

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(306
)
 
(58
)
 
 
 
 
Net increase/(decrease) in cash and cash equivalents
$
(1,148
)
 
$
(907
)
 
 
 
 
Cash and cash equivalents at January 1
$
14,468

 
$
15,659

Net increase/(decrease) in cash and cash equivalents
(1,148
)
 
(907
)
Cash and cash equivalents at September 30
$
13,320

 
$
14,752


The accompanying notes are part of the financial statements.

5
Item 1. Financial Statements (Continued)



FORD MOTOR COMPANY AND SUBSIDIARIES
CONDENSED SECTOR STATEMENT OF CASH FLOWS
(in millions)
 
For the periods ended September 30,
 
2014
 
2013
 
First Nine Months
 
Automotive
 
Financial Services
 
Automotive
 
Financial Services
 
(Unaudited)
Cash flows from operating activities of continuing operations
 
 
 
 
 
 
 
Net cash provided by/(used in) operating activities
$
6,733

 
$
3,878

 
$
6,378

 
$
3,172

 
 
 
 
 
 
 
 
Cash flows from investing activities of continuing operations
 
 
 
 
 
 
 
Capital spending
(5,236
)
 
(73
)
 
(4,635
)
 
(24
)
Acquisitions of finance receivables and operating leases (excluding wholesale and other)
—

 
(36,911
)
 
—

 
(31,880
)
Collections of finance receivables and operating leases (excluding wholesale and other)
—

 
27,607

 
—

 
25,141

Net change in wholesale and other receivables
—

 
(729
)
 
—

 
(1,177
)
Purchases of securities
(26,836
)
 
(10,952
)
 
(71,471
)
 
(25,143
)
Sales and maturities of securities
30,061

 
9,092

 
69,246

 
24,818

Settlements of derivatives
115

 
(161
)
 
(274
)
 
27

Proceeds from sales of retail finance receivables (Note 17)
—

 
—

 
—

 
410

Investing activity (to)/from Financial Services
178

 
—

 
298

 
—

Other
55

 
102

 
203

 
18

Net cash provided by/(used in) investing activities
(1,663
)

(12,025
)

(6,633
)

(7,810
)
 
 
 
 
 
 
 
 
Cash flows from financing activities of continuing operations
 
 
 
 
 
 
 
Cash dividends
(1,470
)
 
—

 
(1,179
)
 
—

Purchases of Common Stock
(1,964
)
 
—

 
(164
)
 
—

Changes in short-term debt
22

 
(2,814
)
 
(120
)
 
(3,107
)
Proceeds from issuance of other debt
156

 
30,951

 
2,175

 
26,771

Principal payments on other debt
(829
)
 
(21,675
)
 
(1,230
)
 
(19,058
)
Financing activity to/(from) Automotive
—

 
(178
)
 
—

 
(298
)
Other
122

 
(86
)
 
264

 
(10
)
Net cash provided by/(used in) financing activities
(3,963
)
 
6,198

 
(254
)
 
4,298

 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(86
)
 
(220
)
 
(78
)
 
20

 
 
 
 
 
 
 
 
Net increase/(decrease) in cash and cash equivalents
$
1,021


$
(2,169
)

$
(587
)

$
(320
)
 
 
 
 
 
 
 
 
Cash and cash equivalents at January 1
$
4,959

 
$
9,509

 
$
6,247

 
$
9,412

Net increase/(decrease) in cash and cash equivalents
1,021

 
(2,169
)
 
(587
)
 
(320
)
Cash and cash equivalents at September 30
$
5,980


$
7,340


$
5,660


$
9,092


The accompanying notes are part of the financial statements.

6
Item 1. Financial Statements (Continued)



FORD MOTOR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
(in millions, unaudited)
 
Equity Attributable to Ford Motor Company
 
 
 
 
 
Capital Stock
 
Cap. in
Excess of
Par Value 
of Stock
 
Retained Earnings
 
Accumulated Other Comprehensive Income/(Loss) (Note 13)
 
Treasury Stock (Note 18)
 
Total
 
Equity
Attributable
to Non-controlling Interests
 
Total
Equity
Balance at December 31, 2013
$
40

 
$
21,422

 
$
23,386

 
$
(18,230
)
 
$
(506
)
 
$
26,112

 
$
33

 
$
26,145

Net income
—

 
—

 
3,135

 
—

 
—

 
3,135

 
2

 
3,137

Other comprehensive income/(loss), net of tax
—

 
—

 
—

 
65

 
—

 
65

 
—

 
65

Common stock issued (including share-based compensation impacts)
—

 
258

 
—

 
—

 
—

 
258

 
—

 
258

Treasury stock/other 
—

 
—

 
—

 
—

 
(1,964
)
 
(1,964
)
 
(4
)
 
(1,968
)
Cash dividends declared
—

 
—

 
(1,470
)
 
—

 
—

 
(1,470
)
 
(2
)
 
(1,472
)
Balance at September 30, 2014
$
40

 
$
21,680

 
$
25,051

 
$
(18,165
)
 
$
(2,470
)
 
$
26,136

 
$
29

 
$
26,165

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2012
$
40

 
$
20,976

 
$
17,778

 
$
(22,858
)
 
$
(292
)
 
$
15,644

 
$
42

 
$
15,686

Net income
—

 
—

 
4,116

 
—

 
—

 
4,116

 
3

 
4,119

Other comprehensive income/(loss), net of tax
—

 
—

 
—

 
1,348

 
—

 
1,348

 
—

 
1,348

Common stock issued (including share-based compensation impacts)
—

 
402

 
—

 
—

 
—

 
402

 
—

 
402

Treasury stock/other 
—

 
—

 
—

 
—

 
(164
)
 
(164
)
 
(2
)
 
(166
)
Cash dividends declared
—

 
—

 
(1,179
)
 
—

 
—

 
(1,179
)
 
—

 
(1,179
)
Balance at September 30, 2013
$
40

 
$
21,378

 
$
20,715

 
$
(21,510
)
 
$
(456
)
 
$
20,167

 
$
43

 
$
20,210


The accompanying notes are part of the financial statements.

7
Item 1. Financial Statements (Continued)



FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

Table of Contents
Footnote
 
Page
Note 1
Presentation
Note 2
Accounting Standards Issued But Not Yet Adopted
Note 3
Fair Value Measurements
Note 4
Financial Services Sector Finance Receivables
Note 5
Financial Services Sector Allowance for Credit Losses
Note 6
Inventories
Note 7
Variable Interest Entities
Note 8
Other Liabilities and Deferred Revenue
Note 9
Retirement Benefits
Note 10
Debt
Note 11
Derivative Financial Instruments and Hedging Activities
Note 12
Redeemable Noncontrolling Interest
Note 13
Accumulated Other Comprehensive Income/(Loss)
Note 14
Other Income/(Loss)
Note 15
Employee Separation Actions and Exit and Disposal Activities
Note 16
Income Taxes
Note 17
Changes in Investments in Affiliates and Assets Held for Sale
Note 18
Capital Stock and Amounts Per Share
Note 19
Segment Information
Note 20
Commitments and Contingencies



8
Item 1. Financial Statements (Continued)
                                                                
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. PRESENTATION

Our financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. We show certain of our financial statements on both a consolidated and a sector basis for our Automotive and Financial Services sectors. Intercompany items have been eliminated in both the consolidated and sector balance sheets. Where the presentation of these intercompany eliminations or consolidated adjustments differs between the consolidated and sector financial statements, reconciliations of certain line items are explained below in this Note or in related footnotes.

In the opinion of management, these unaudited financial statements reflect a fair statement of the results of operations and financial condition of Ford Motor Company, its consolidated subsidiaries, and consolidated VIEs of which we are the primary beneficiary for the periods and at the dates presented.  The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.  Reference should be made to the financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2013 (“2013 Form 10-K Report”).  For purposes of this report, “Ford,” the “Company,” “we,” “our,” “us” or similar references mean Ford Motor Company, our consolidated subsidiaries, and our consolidated VIEs of which we are the primary beneficiary, unless the context requires otherwise. 

We reclassified certain prior year amounts in our consolidated financial statements to conform to current year presentation.

Change in accounting. We provide medical, life, and income benefits to hourly and salary employees when they become disabled. As of January 1, 2014, we changed our accounting policy for these benefits from an event-driven model to a service-accrual model, such that our obligation now includes an estimated cost to be incurred for individuals who are disabled at the time of measurement (which was the amount recorded under our previous policy) as well as an amount that considers the probability that active employees will become disabled in the future. We believe this change in accounting method is preferable because it better aligns the recognition of expense with the periods in which the Company receives the benefit of the employees’ services, and will allow for better comparability with the method used by other companies in our industry.
We have retroactively applied this change in accounting method to all prior period amounts. As of
December 31, 2012, the cumulative effect of the change decreased Total equity by $303 million and increased Other liabilities and deferred revenue by $468 million, as well as increased Deferred income taxes by $165 million. As of December 31, 2013, the cumulative effect of the change decreased Total equity by $271 million and increased Other liabilities and deferred revenue by $424 million, as well as increased Deferred income taxes by $153 million. The effect of this change was immaterial on income statement and statement of cash flow amounts for the interim periods ended September 30, 2014, and had no impact for the interim periods ended September 30, 2013.
 
Adoption of New Accounting Standards

Income Taxes - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. On January 1, 2014, we adopted the new accounting standard that requires an unrecognized tax benefit to be presented as a decrease in a deferred tax asset when a net operating loss, a similar tax loss, or a tax credit carryforward exists, and certain criteria are met. The new accounting standard is consistent with our prior practice, and thus the adoption did not impact our consolidated financial statements.

Foreign Currency Matters - Parent’s Accounting for Cumulative Translation Adjustment. On January 1, 2014, we adopted the new accounting standard that clarifies the applicable guidance for a parent company’s accounting for the release of the cumulative translation adjustment into net income upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The new accounting standard is consistent with our prior practice, and thus the adoption did not impact our consolidated financial statements.

Liabilities - Obligations Resulting from Joint and Several Liability Arrangements. On January 1, 2014, we adopted the new accounting standard that provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements. The adoption of this accounting standard did not impact our consolidated financial statements or financial statement disclosures.



9
Item 1. Financial Statements (Continued)
                                                                
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. PRESENTATION (Continued)

Reconciliations between Consolidated and Sector Financial Statements

Sector to Consolidated Deferred Tax Assets and Liabilities. The difference between the total assets and total liabilities as presented on our sector balance sheet and consolidated balance sheet is the result of netting deferred income tax assets and liabilities. The reconciliation between the totals for the sector and consolidated balance sheets was as follows (in millions):
 
September 30,
2014
 
December 31,
2013
Sector balance sheet presentation of deferred income tax assets
 
 
 
Automotive sector current deferred income tax assets
$
1,590

 
$
1,574

Automotive sector non-current deferred income tax assets
12,307

 
13,436

Financial Services sector deferred income tax assets (a)
178

 
184

Total
14,075

 
15,194

Reclassification for netting of deferred income taxes
(1,763
)
 
(1,726
)
Consolidated balance sheet presentation of deferred income tax assets
$
12,312

 
$
13,468

 
 
 
 
Sector balance sheet presentation of deferred income tax liabilities
 

 
 

Automotive sector current deferred income tax liabilities
$
313

 
$
267

Automotive sector non-current deferred income tax liabilities
408

 
430

Financial Services sector deferred income tax liabilities
1,618

 
1,627

Total
2,339

 
2,324

Reclassification for netting of deferred income taxes
(1,763
)
 
(1,726
)
Consolidated balance sheet presentation of deferred income tax liabilities
$
576

 
$
598

__________
(a)
Financial Services deferred income tax assets are included in Financial Services Other assets on our sector balance sheet.


10
Item 1. Financial Statements (Continued)
                                                                
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. PRESENTATION (Continued)

Sector to Consolidated Cash Flow. We present certain cash flows from wholesale and other receivables and interest supplements and residual support differently on our sector and consolidated statements of cash flows. The reconciliation between totals for the sector and consolidated cash flows for the periods ended September 30 was as follows (in millions):
 
First Nine Months
 
2014
 
2013
Automotive net cash provided by/(used in) operating activities
$
6,733

 
$
6,378

Financial Services net cash provided by/(used in) operating activities
3,878

 
3,172

Total sector net cash provided by/(used in) operating activities
10,611

 
9,550

Reclassifications between investing and operating cash flows
 

 
 

Purchases/Collections of wholesale receivables (a)
(728
)
 
(1,088
)
Purchases/Collections of other receivables (b)
(1
)
 
(89
)
Payments of interest supplements and residual support (c)
2,457

 
1,756

Consolidated net cash provided by/(used in) operating activities
$
12,339

 
$
10,129

 
 
 
 
Automotive net cash provided by/(used in) investing activities
$
(1,663
)
 
$
(6,633
)
Financial Services net cash provided by/(used in) investing activities
(12,025
)
 
(7,810
)
Total sector net cash provided by/(used in) investing activities
(13,688
)
 
(14,443
)
Reclassifications between investing and operating cash flows
 

 
 

Purchases/Collections of wholesale receivables (a)
728

 
1,088

Purchases/Collections of other receivables (b)
1

 
89

Payments of interest supplements and residual support (c)
(2,457
)
 
(1,756
)
Reclassifications between investing and financing cash flows
 
 
 
Elimination of investing activity to/(from) Financial Services in consolidation
(178
)
 
(298
)
Consolidated net cash provided by/(used in) investing activities
$
(15,594
)
 
$
(15,320
)
 
 
 
 
Automotive net cash provided by/(used in) financing activities
$
(3,963
)
 
$
(254
)
Financial Services net cash provided by/(used in) financing activities
6,198

 
4,298

Total sector net cash provided by/(used in) financing activities
2,235

 
4,044

Reclassifications between investing and financing cash flows
 

 
 

Elimination of investing activity to/(from) Financial Services in consolidation
178

 
298

Consolidated net cash provided by/(used in) financing activities
$
2,413

 
$
4,342

 __________
(a)
In addition to the cash flows from vehicles sold by us, the cash flow from wholesale finance receivables (being reclassified between investing and operating) includes dealer financing by Ford Credit of used and non-Ford vehicles. One hundred percent of cash flows from these wholesale finance receivables have been reclassified for consolidated presentation as the portion of these cash flows from used and non-Ford vehicles is impracticable to separate.
(b)
Includes cash flows of other receivables purchased/collected by the Financial Services sector from certain divisions and subsidiaries of the Automotive sector.
(c)
Payments from Automotive sector to Ford Credit on behalf of the retail customer that represent interest supplements and residual support.


11
Item 1. Financial Statements (Continued)
                                                                
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. PRESENTATION (Continued)

Venezuelan Operations

On February 13, 2013, the Venezuelan government effected a devaluation of the bolivar, from an exchange rate of 4.3 bolivars to the U.S. dollar to an exchange rate of 6.3 bolivars to the U.S. dollar. This resulted in a remeasurement loss of $186 million in the first quarter of 2013.

Based on changes to Venezuelan currency exchange rate mechanisms in the first quarter of 2014, we changed the exchange rate we used to remeasure the financial statements of our Venezuelan subsidiaries in U.S. dollars. Since March 31, 2014, we have used the exchange rate determined by periodic auctions for U.S. dollars conducted under Venezuela’s Complementary System of Foreign Currency Administration (“SICAD I”). The exchange rate we used at March 31, 2014 was 10.8 bolivars to the U.S. dollar and resulted in a remeasurement loss of $316 million in the first quarter of 2014 ($310 million related to our Automotive sector and $6 million related to our Financial Services sector). At September 30, 2014, the SICAD I exchange rate was 12.0 bolivars to the U.S. dollar.

The operating environment in Venezuela continues to be challenging. Foreign exchange control regulations have affected our Venezuelan operation’s ability to pay dividends and obligations denominated in U.S. dollars and are constraining parts availability and our ability to maintain normal production. At September 30, 2014, our investment in our Venezuelan subsidiaries (which includes undistributed earnings) was $483 million. Also, at September 30, 2014, those subsidiaries had $261 million of U.S. dollar currency exchange requests pending with and in transit to the governmental controlled currency exchanges, including $257 million payable to other Ford consolidated affiliates.

At September 30, 2014, our Venezuelan subsidiaries had a bolivar-denominated net monetary position of
$352 million, including $342 million of bolivar-denominated cash and cash equivalents. A further devaluation from an exchange rate of 12.0 bolivars to the U.S. dollar would result in a balance sheet remeasurement loss.


12
Item 1. Financial Statements (Continued)
                                                                
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 2. ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED

Revenue - Revenue from Contracts with Customers.  In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard that requires recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. The new standard supersedes virtually all present U.S. GAAP guidance on revenue recognition, and requires the use of more estimates and judgments than the present standards as well as additional disclosures. The new accounting standard is effective as of January 1, 2017 and we are assessing the potential impact to our consolidated financial statements and financial statement disclosures.

Transfers and Servicing - Repurchase-to-Maturity Transactions, Repurchase Financings and Disclosures. In June 2014, the FASB issued a new accounting standard that changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. The new standard also requires additional disclosures for certain transfers of financial assets with agreements that both entitle and obligate the transferor to repurchase the transferred assets from the transferee. The new accounting standard is effective as of January 1, 2015 and we do not expect it to have an impact on our consolidated financial statements and financial statement disclosures.

Stock Compensation - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. In June 2014, the FASB issued a new accounting standard that requires performance targets that could be achieved after the requisite service period be treated as performance conditions that affect the vesting of the award. The new accounting standard is effective as of January 1, 2016 and we do not expect it to have an impact on our consolidated financial statements and financial statement disclosures.

Consolidation - Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity. In August 2014, the FASB issued a new accounting standard that provides an entity the option to elect to measure the financial assets and financial liabilities of a consolidated collateralized financing entity (“CFE”) at a value that is reflective of its economic interest in the CFE. The new accounting standard is effective as of January 1, 2016 and we are assessing the potential impact to our consolidated financial statements and financial statement disclosures.

Going Concern - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. In 
August 2014, the FASB issued a new accounting standard that requires management to assess if there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim period. If conditions or events give rise to substantial doubt, disclosures are required. The new accounting standard is effective as of December 31, 2016 and we do not expect it to have an impact on our financial statement disclosures.

NOTE 3. FAIR VALUE MEASUREMENTS

Cash equivalents, marketable securities, and derivative financial instruments are presented on our financial statements on a recurring basis at fair value, while other assets and liabilities are measured at fair value on a nonrecurring basis, such as when we have an asset impairment. There have been no changes to the types of inputs used or the valuation techniques since year end. During the second quarter of 2014, we impaired our equity in net assets of Ford Sollers Netherlands B.V. (“Ford Sollers”), which resulted in a fair value measurement on a non-recurring basis. See
Note 17 for additional information.

13
Item 1. Financial Statements (Continued)
                                                                
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 3. FAIR VALUE MEASUREMENTS (Continued)

Input Hierarchy of Items Measured at Fair Value on a Recurring Basis

The following table categorizes the fair values of items measured at fair value on a recurring basis on our balance sheet (in millions):
 
September 30, 2014
 
December 31, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Automotive Sector
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents – financial instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
—

 
$
58

 
$
—

 
$
58

 
$
—

 
$
33

 
$
—

 
$
33

Non-U.S. government and agencies
—

 
—

 
—

 
—

 
—

 
200

 
—

 
200

Corporate debt
—

 
40

 
—

 
40

 
—

 
—

 
—

 
—

Total cash equivalents (a)
—

 
98

 
—

 
98

 
—

 
233

 
—

 
233

Marketable securities
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
978

 
5,056

 
—

 
6,034

 
3,752

 
6,596

 
—

 
10,348

Non-U.S. government and agencies
—

 
7,487

 
—

 
7,487

 
—

 
6,538

 
—

 
6,538

Corporate debt
—

 
2,685

 
—

 
2,685

 
—

 
2,623

 
—

 
2,623

Equities
328

 
—

 
—

 
328

 
341

 
—

 
—

 
341

Other marketable securities
—

 
342

 
—

 
342

 
—

 
307

 
—

 
307

Total marketable securities
1,306

 
15,570

 
—

 
16,876

 
4,093

 
16,064

 
—

 
20,157

Derivative financial instruments (b)
—

 
535

 
2

 
537

 
—

 
579

 
1

 
580

Total assets at fair value
$
1,306

 
$
16,203

 
$
2

 
$
17,511

 
$
4,093

 
$
16,876

 
$
1

 
$
20,970

Liabilities
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
Derivative financial instruments (b)
$
—

 
$
697

 
$
2

 
$
699

 
$
—

 
$
416

 
$
2

 
$
418

Total liabilities at fair value
$
—

 
$
697

 
$
2

 
$
699

 
$
—

 
$
416

 
$
2

 
$
418

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial Services Sector
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents – financial instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
40

 
$
—

 
$
—

 
$
40

 
$
—

 
$
—

 
$
—

 
$
—

Non-U.S. government and agencies
—

 
341

 
—

 
341

 
—

 
24

 
—

 
24

Corporate debt
—

 
60

 
—

 
60

 
—

 
—

 
—

 
—

Total cash equivalents (a)
40

 
401

 
—

 
441

 
—

 
24

 
—

 
24

Marketable securities
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
341

 
1,222

 
—

 
1,563

 
418

 
25

 
—

 
443

Non-U.S. government and agencies
—

 
644

 
—

 
644

 
—

 
184

 
—

 
184

Corporate debt
—

 
1,525

 
—

 
1,525

 
—

 
1,273

 
—

 
1,273

Other marketable securities
—

 
35

 
—

 
35

 
—

 
43

 
—

 
43

Total marketable securities
341

 
3,426

 
—

 
3,767

 
418

 
1,525

 
—

 
1,943

Derivative financial instruments (b)
—

 
751

 
—

 
751

 
—

 
585

 
—

 
585

Total assets at fair value
$
381

 
$
4,578

 
$
—

 
$
4,959

 
$
418

 
$
2,134

 
$
—

 
$
2,552

Liabilities
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
Derivative financial instruments (b)
$
—

 
$
291

 
$
—

 
$
291

 
$
—

 
$
506

 
$
—

 
$
506

Total liabilities at fair value
$
—

 
$
291

 
$
—

 
$
291

 
$
—

 
$
506

 
$
—

 
$
506

  __________
(a)
Excludes time deposits, certificates of deposit, money market accounts, and other cash equivalents reported at par value on our balance sheet totaling $4.7 billion and $2.8 billion for Automotive sector and $4.2 billion and $6.7 billion for Financial Services sector at September 30, 2014 and December 31, 2013, respectively. In addition to these cash equivalents, we also had cash on hand totaling $1.2 billion and $2 billion for Automotive sector and $2.7 billion and $2.8 billion for Financial Services sector at September 30, 2014 and December 31, 2013, respectively.
(b)
See Note 11 for additional information regarding derivative financial instruments.

14
Item 1. Financial Statements (Continued)
                                                                
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 4. FINANCIAL SERVICES SECTOR FINANCE RECEIVABLES

Our Financial Services sector finance receivables primarily relate to Ford Credit, but also include the Other Financial Services segment and certain intersector eliminations.

Our Financial Services sector segments our finance receivables into North America and International “consumer” and “non-consumer” portfolios.  The receivables are generally secured by the vehicles, inventory, or other property being financed.

Finance receivables are recorded at the time of origination or purchase at fair value and are subsequently reported at amortized cost, net of any allowance for credit losses.

Consumer Portfolio.  Receivables in this portfolio include products offered to individuals and businesses that finance the acquisition of Ford and Lincoln vehicles from dealers for personal or commercial use.  Retail financing includes retail installment contracts for new and used vehicles and direct financing leases with retail customers, government entities, daily rental companies, and fleet customers.

Non-Consumer Portfolio. Receivables in this portfolio include products offered to automotive dealers.  The products include:

•
Dealer financing – includes wholesale loans to dealers to finance the purchase of vehicle inventory, also known as floorplan financing, as well as loans to dealers to finance working capital and improvements to dealership facilities, finance the purchase of dealership real estate, and finance other dealer programs. Wholesale financing is approximately 94% of dealer financing
•
Other – primarily related to the sale of parts and accessories to dealers


15
Item 1. Financial Statements (Continued)
                                                                
FORD MOTOR COMPANY AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS

NOTE 4. FINANCIAL SERVICES SECTOR FINANCE RECEIVABLES (Continued)
Finance receivables, net were as follows (in millions):
 
September 30, 2014
 
December 31, 2013
 
North
America
 
International
 
Total Finance Receivables
 
North
America
 
International
 
Total Finance Receivables
Consumer
 
 
 
 
 
 
 
 
 
 
 
Retail financing, gross
$
43,537

 
$
11,784

 
$
55,321

 
$
40,902

 
$
10,797

 
$
51,699

Less: Unearned interest supplements
(1,511
)
 
(239
)
 
(1,750
)
 
(1,255
)
 
(247
)
 
(1,502
)
Consumer finance receivables
42,026

 
11,545

 
53,571

 
39,647

 
10,550

 
50,197

Non-Consumer
 

 
 

 
 

 
 

 
 

 
 

Dealer financing
21,454

 
8,779

 
30,233

 
22,072

 
7,833

 
29,905

Other
748

 
310

 
1,058

 
732

 
339

 
1,071

Non-Consumer finance receivables
22,202

 
9,089

 
31,291

 
22,804

 
8,172

 
30,976

Total recorded investment
$
64,228

 
$
20,634

 
$
84,862

 
$
62,451

 
$
18,722

 
$
81,173

 
 
 
 
 
 
 
 
 
 
 
 
Recorded investment in finance receivables
$
64,228

 
$
20,634

 
$
84,862

 
$
62,451

 
$
18,722

 
$
81,173

Less:  Allowance for credit losses
(256
)
 
(69
)
 
(325
)
 
(280
)
 
(77
)
 
(357
)
Finance receivables, net (a)
$
63,972

 
$
20,565

 
$
84,537

 
$
62,171

 
$
18,645

 
$
80,816

 
 
 
 
 
 
 
 
 
 
 
 
Net finance receivables subject to fair value (b)
 
 
 
 
$
82,869

 
 
 
 
 
$
79,149

Fair value
 
 
 
 
84,520

 
 
 
 
 
80,838

__________
(a)
At